Michael Girdley explains how Apollo Global's 2014 acquisition of Chuck E. Cheese became a cautionary tale. The firm loaded the chain with debt, cut costs, and tried to reposition it as a luxury brand, alienating the value-seeking families who made up its customer base. Revenues fell year after year until the pandemic pushed it into bankruptcy.
In 2014, Apollo Global, a private equity firm, bought the Chuck E. Cheese business for $1.3 billion. And they did what private equity typically does— borrow some money, put debt on the company, and put up some of their own money to function as equity or ownership in the company. They ran the standard private equity playbook where they put debt on the business, they sell off real estate, cut costs, and all that kind of stuff. They also did something else very interesting, which is they tried to push Chuck E. Cheese to become upmarket or more of a luxury brand. But it turns out that most people are not fancy, high-dollar, private jet flying, private equity professionals out of New York City. We want value and we want to be able to push our dollar pretty far. And that's what most Chuck E. Cheese customers wanted. Suddenly Chuck E. Cheese was alienating its core customer base who couldn't afford it anymore. Well, the private equity guys could when they arrived on the private jet, but you and I, we couldn't. So when the pandemic came in 2020 and all the locations shuttered, all the locations had been actually losing revenue for year after year, mostly because they tried to become something they weren't, which was a luxury brand when they should have been something for everyman. And fundamentally, it's a problem that a lot of owners and investors have. They think everybody's like them. Especially as you get a bit more success, it becomes easier to think like a rich person and not like a normal person. In the end, it's a big reason why Chuck E. Cheese declared bankruptcy for the second time in late 2020. The Chuck E. Cheese story is a lot more than just this, and I did a long-form video on it. You can find a link to it in the comments below or on my bio page.
